Sonic Automotive’s EchoPark stand-alone, used-vehicle stores were “profitable as a group” in June, Sonic executive vice president of operations, Jeff Dyke, said during the company’s second quarter earnings call on July 27.

Dyke said EchoPark’s seven stores made more than $1 million in June and were tracking to exceed that amount in July.

The company expects its EchoPark operations to generate about $15 million in profits next year.

It plans to open one EchoPark store each in its Houston and Charlotte, N.C., markets during the fourth quarter and two additional stores by the end of 2019.

As of the quarter that ended June 30, Sonic operated three EchoPark stores in its Denver market, one in its Colorado Springs, Colo., market, two in its San Antonio, Texas, market and one in its Dallas market.

“I’m most proud of the topline revenue growth experienced in our EchoPark stores as we continue to open new stores, and our ramp up period is shortening and volumes are building at a more rapid rate,” said Sonic president Scott Smith, who was also on the call.

EchoPark’s retail sales of 7,459 units in the quarter were more than triple its unit sales in the second quarter of 2017, the company said. EchoPark stores generated $180.2 million in revenue, which was also more than triple its revenue in the year-ago quarter.

“Sequentially on a quarterly basis, EchoPark revenue grew 37 percent compared to (first quarter) 2018,” Smith said. “We will continue pushing EchoPark topline growth as we build up this brand in the markets we enter.”

Sonic’s overall used-vehicle retail sales grew 17.2 percent to 35,779 units in the quarter, and overall used-vehicle revenue rose 18.8 percent to $762.6 million.

Margin erosion hurts gross profits

Sonic’s EchoPark operations was a bright spot amid disappointing new-vehicle margin erosion at the dealership group’s BMW and Honda dealerships.

Its same store, new-vehicle revenue in the quarter grew 1.6 percent, driven by higher average selling prices, but gross profits dropped 6.3 percent because of lower margins.

“The margin that we’re getting squeezed on the most is coming from the lack of factory-to-dealer incentives,” said Smith.

Honda’s redesigned 2018 Accord was a problem, Dyke said.

Margins on Accords in the quarter dropped $250 to $300 per vehicle costing Sonic’s Honda stores about $1 million a month, Dyke said. Incentives on the Accord were $1,200 to $2,000 less than they were in the year-ago quarter, he added.

BMW vehicles have incentives, but “the mix of the dollars and how they are arriving at the store cost us in the quarter about $575 to $600,” per vehicle, Dyke added.

Together, BMW and Honda represent 30 percent of Sonic’s store mix and 40 percent of its profits. Dyke expects margins for both brands in the third quarter to be “difficult.”

Sonic’s overall net income increased 39 percent to $16.9 million in the quarter, and its overall gross profits inched up 0.5 percent to $362.4 million. Sonic’s second quarter revenues rose 4.2 percent to $2.5 billion.

Sonic said it will open a Land Rover dealership in Atlanta later this year.

Used-car business good at PAG

Penske Automotive Group also experienced margin erosion at its BMW and Honda stores in its quarter that ended June 30, said chairman Roger Penske during the company’s quarterly earnings call on July 26.

The company’s total retail automotive gross margins dipped to 14.6 percent from 14.8 percent in 2017.

Penske said new-vehicle business at the company’s BMW dealerships in the U.S was flat in the quarter, but it’s used-vehicle sales were up 10 percent.

He said the company has over 2,000 loaner vehicles at its BMW dealerships which provides the group with “young” used vehicles that can be sold “without any reconditioning to speak of.”

“This has become a very good product for us, and that’s driven this 1.65-to-1 used-to-new (ratio),” he said. “From our perspective, overall our used-car business, our BMW business, was good in the second quarter.”

Business at Penske Automotive’s Honda stores was flat in the quarter, Penske said. The company’s Honda new-vehicle margins fell “about 9 percent,” and the brand’s used-vehicle margins increased “about 0.25 percent,” he said.

“There really hasn’t been a lot of (incentive) support on the new Accord.”

Used-car superstores

Penske Automotive’s overall net income increased 26.5 percent to $135.2 million in the quarter on revenues that rose 10.3 percent to $5.9 billion. Overall gross profits rose 8.9 percent to $889.8 million.

The company operates five stand-alone, used-car superstores in the U.S. and nine in the United Kingdom.

In the quarter, those used-vehicle superstores retailed 18,832 units and generated $346.7 million in revenue, Penske said. This year, those used-vehicle stores are expected to retail nearly 70,000 units and generate approximately $1.2 billion in revenue.

Penske Automotive’s retail automotive business operates 341 new-vehicle franchises internationally; 151 are located in the U.S.

Its retail automotive business, which includes its used-vehicle superstores, generated $5.5 billion in total revenue, up 8.2 percent year-over-year. Total gross profits for retail automotive were up 7 percent to $798.0 million.

The company’ new-unit retail sales dropped 4.5 percent to 61,071 in the quarter, and its used-unit retail sales of 73,134 were up 10.5 percent.